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SHUTDOWN DAMAGE MOUNTING — So we can forget about the short shutdown story. We are headed into week two with absolutely no sign of an endgame before the Oct. 17 debt limit deadline. And now it’s time to start tallying up just how much damage is already being done to the economy, never mind how much could be done by a debt limit breach. Pantheon’s Ian Shepherdson: “After five working days of partial federal government shutdown, the hit to fourth quarter GDP growth probably now is approaching .5 percent at an annualized rate. …

“These numbers, however, take no account of the damage done to businesses which depend on the government. If you supply goods and services to parts of the government deemed non-essential, you aren’t being paid. … [W]e think it reasonable to assume each week of the shutdown will depress fourth quarter GDP growth by about 0.5pp. That’s more than enough to matter, given that we would have expected growth of only 1-to-2 percent in the absence of the shutdown.”

WHAT’S TO COME IS EVEN WORSE — Per latest Goldman Sachs research report: “If the debt limit is not raised before the Treasury depletes its cash balance, it could force the Treasury to rapidly eliminate the budget deficit. … We estimate that the fiscal pullback would amount to as much as 4.2 percent of GDP (annualized). … If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed very quickly.”

GOLDMAN ON PRIORITIZATION — “The Treasury’s position on prioritization is that its systems are designed to pay all obligations as they are due, and do not allow the Treasury to set a priority of payments to pay some obligations and not others. Considering that the Treasury makes around 4 million payments per day, this is not hard to believe. Even if full prioritization across all payments were possible, it seems unlikely to work smoothly in practice. …

“[W]e would expect that if it became necessary, the Treasury would still find a way to separate principal and interest payments from the rest. It is worth noting that those principal and interest payments, unlike other Treasury payments, are made through the Fedwire system, which could allow easier segregation from other outlays.”

WORLD GROWING WORRIED — Reuters’ Alan Wheatley in London: “The world is watching Washington's showdown over the federal budget and debt ceiling with the same feelings of horror, disbelief and ghoulish fascination that a slow-motion car crash produces. … Both sides know the damage that would be inflicted on the country if the Treasury runs out of money later this month, risking an unprecedented debt default.

So one of them is sure to blink and swerve away. Aren't they? … Hard-line Republicans opposed to Obama's health care reform have already forced a shutdown of non-essential government functions since October 1 by blocking new spending authority.

“For the issuer of the world's reserve currency, whose interest rates form a global benchmark, to default would be nothing short of catastrophic, according to the U.S. Treasury. That is why investors, though they have been selling stocks as a precaution, still believe a deal will be struck. … The standoff is already damaging America's standing — a point that U.S. policy makers can expect to hear this week from finance ministers attending meetings in Washington of the Group of 20 leading economies and the International Monetary Fund.” http://reut.rs/GGvc1R

CATASTROPHE AWAITS — Bloomberg’s Yalman Onaran: “Anyone who remembers the collapse of Lehman … knows what a global financial disaster is. A U.S. government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen. Failure by the world’s largest borrower to pay its debt — unprecedented in modern history — will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression.” http://bloom.bg/GHduuG

ONE HOPEFUL VIEW ON DEBT LIMIT — M.M., growing more freaked by the moment this weekend, emailed with a former government official who went through several of these battles: “I don’t agree with you about the high odds for default. I totally believe that, if he were backed into a corner, Boehner would put a clean debt limit bill on the house floor before he would let the country default. It would be ugly all around, but I think the really likely outcome is a clean CR/clean debt limit.” M.M. still can’t see the House GOP buckling to the complete defeat this scenario envisions.

SHUTDOWN GRINDS ON — POLITICO’s Seung Min Kim, John Bresnahan and Burgess Everett: “The government shutdown is lurching into a second week after a fruitless weekend on Capitol Hill. … Even House-passed legislation that would pay federal workers prompted an angry reaction from Senate Majority Leader Harry Reid.

There were no signs of serious negotiations over the weekend, and the longer the standoff drags on the more likely the fight will bump up against the Oct. 17 deadline to raise the debt ceiling — setting the stage for a giant battle over fiscal policy in the coming weeks.” http://bit.ly/1cluvIK

DON’T MISS: PLABYOOK BREAKFAST at 8 a.m. this morning with POLITICO's Chief White House Correspondent Mike Allen, featuring special guests Jason Furman, Chairman of the Council of Economic Advisers and Gene Sperling, Director of the National Economic Council. Details: http://bit.ly/GGWnZY

FIRST LOOK: GLOBAL BANKS DEFENDED — Business Roundtable this morning will release report on the importance of global banks to US companies operating around the world.” From the report: “According to a recent survey of its 212 members, BRT found that 98 percent of respondents rely on large globally engaged banks for domestic operations, and 89 percent for foreign operations” Full report: http://bit.ly/17ecuEs

THIS MORNING ON POLITICO PRO FINANCE – Jon Prior on the shutdown’s impact on the condo market… To learn more about Pro's subscriber-only coverage -- and to get Morning Money every day before 6 a.m. -- please contact Pro Services at (703) 341-4600 or info@politicopro.com.

GOOD MONDAY MORNING — Your M.M. columnist is moderating the Center for Audit Quality’s 2013 Investor Confidence Forum on Wednesday at 8:30 a.m. in D.C. The event will feature the release of the 7th Annual Main Street Investor Survey with fresh details on the impact of the current Washington crisis. Please come join us! You can RSVP to centerforauditquality@gpgdc.com. Details: http://bit.ly/GGsSbf

DRIVING THE WEEK — Members of Congress return this evening to reengage on the shutdown fight with no real change expected in the GOP’s efforts to re-open bits of the government and Democrats unwillingness to do anything but open the whole thing. … Barring some unexpected change, it looks we will have to get closer to Oct. 17 for any real movement. … Consumer credit at 3 p.m. today expected to grow by $12 billion. … NFIB small business survey at 7:30 a.m. expected to remain unchanged at 94.0. …

FOMC minutes at 2:00 p.m. on Wednesday should offer more insight into the decision not to taper … Treasury budget (if it comes out) at 2 p.m. on Thursday expected to show a $60 billion surplus. … Univ. Mich. Consumer Sentiment at 9:55 a.m. expected to dip to 77 from 77.5 … JPMorganChase kicks off bank earnings season on Friday.

** A big new tax on health insurance is coming on January 1, 2014. Congress should stop it before it hurts families, small businesses and seniors. http://healthinsurancetaxhurts.org/ **

FISCAL FLY AROUND –

BOEHNER: WE TOOK A STAND — POLITICO’s Jennifer Epstein: “Boehner says he wasn't pulled into demanding concessions from Democrats to keep funding the government — he willingly joined with fellow Republicans. ‘I and my members decided that the threat of Obamacare and what was happening was so important that it was time for us to take a stand. And we took a stand,’ the Ohio Republican said. ... on ABC's "This Week." That's even though he had offered a clean government funding bill to Senate Majority Leader Harry Reid (D-Nev.) over the summer. … ‘You've never seen a more dedicated group of people who are thoroughly concerned about the future of our country,’ he said of House Republicans. "It is time for us to stand and fight.’ …

“There aren’t enough votes in the House to pass a no-strings-attached funding bill to end the government shutdown … Boehner said. … ‘There are not the votes in the House to pass a clean CR.’ … But Democrats weren’t buying it. ‘That flies in the face of all the math and public statements of GOP members,’ Obama senior adviser Dan Pfeiffer said on Twitter. ‘Either he is all wrong or all his members are lying.’

Boehner’s comments contradict whip counts done by news organizations and by Democrats, which have found at least 21 Republicans willing to join with the vast majority of Democrats to pass a clean continuing spending resolution. … ‘Why doesn’t he put it on the floor and give it a chance?’ Treasury Secretary Jack Lew asked on CBS’s ‘Face the Nation.’” … Sen. Chuck Schumer (D-N.Y.) called it a ‘friendly challenge’ for Boehner. ‘Put it on the floor Monday or Tuesday,’ he said on ‘This Week,’ ... ‘I would bet there are the votes to pass it. We have just about every Democrat, 21 Republicans have publicly said they would. There are many more Republicans who have said that they privately would.’” http://bit.ly/GGtsWr

MURRAY ON BUDGET TALKS — Per Senate Budget Committee Chairwoman Patty Murray: “For six months I’ve tried to enter into formal budget negotiations with Paul Ryan, only to be repeatedly denied permission to negotiate by Ted Cruz and the tea party. Now, a week into a government shutdown that he could end at a moment’s notice, Speaker Boehner is simply trying to distract from his constantly changing list of demands. As soon as Speaker Boehner ends this shutdown and stops threatening the economy with a potentially catastrophic default, I am certainly ready to get to work in a budget conference he has spent the past six months avoiding.”

THE PORTMAN PLAN – WSJ’s Patrick O’Connor and Peter Nicholas: “Sen. Rob Portman of Ohio is trying to enlist support from Senate Democrats for a proposal he believes could break the stalemate, according to a person familiar with the plan. Mr. Portman has recommended an agreement that would fund the government for one year at the level favored by House Republicans that would include plans to start lawmakers on an overhaul of the tax code.

“His plan also would raise the debt limit by an amount equal to deficit-reduction measures already backed by Mr. Obama in his most recent budget, including [chained CPI] … Sen. Chuck Schumer (D., N.Y.) said in an interview than five Republican senators had approached him about trying to broker an end to the shutdown. He declined to elaborate” http://on.wsj.com/1cluXXu

LEW ON DEBT LIMIT — NYT’s Jackie Calmes and Jeremy W. Peters: “Treasury Secretary Jacob J. Lew appeared on four Sunday talk shows to keep the pressure on Republicans to raise the debt limit. Mr. Lew, speaking on … CNN … emphatically reiterated the administration’s legal opinion that Mr. Obama cannot constitutionally raise the debt ceiling by himself if Congress fails to act. ‘There is no option that prevents us from being in default if we’re not paying our bills,” Mr. Lew said, rejecting the idea that the president could invoke a constitutional power or take some other action. Mr. Obama has also ruled that out. … Mr. Lew dismissed questions about why Mr. Obama would not negotiate with House Republicans over the debt limit … ‘The president wants to negotiate,’ Mr. Lew said on Fox News. ‘Congress needs to do its job, and we then need to negotiate.’ http://nyti.ms/1fbzZH2

BUSINESS BACKLASH? — WP’s Philip Rucker: “Nearly three years after a band of renegade congressmen brought the tea party insurgency to Washington, there are early rumblings of a political backlash in some of their districts. Here in the Dutch Reformed country of West Michigan, long a bastion of mainstream, mannerly conservatism, voters in 2010 handed the House seat once held by Gerald R. Ford to Justin Amash, a 33-year-old revolutionary and heir to the libertarian mantle of former Rep. Ron Paul (R-Tex.). …

But within Grand Rapids’ powerful business establishment, patience is running low with Amash’s ideological agenda and tactics. Some business leaders are recruiting a Republican primary challenger who they hope will serve the old-fashioned way — by working the inside game and playing nice to gain influence and solve problems for the district. They are tired of tea party governance, as exemplified by the budget fight that led to the shutdown and threatens a first-ever U.S. credit default.

“Similar efforts are underway in at least three other districts — one in the moneyed Detroit suburbs and the others in North Carolina and Tennessee — where business leaders are backing primary campaigns against Republican congressmen who have alienated party leaders. The races mark a notable shift in a party where most primary challenges in recent years have come from the right. … But any move to take out a tea party-aligned congressman in a Republican primary would be challenging, especially here in Michigan’s 3rd District, where grass-roots conservatives hold considerable sway.” http://wapo.st/1gi7w1d

QUESTIONS ON OBAMACARE? – Join David Nather, author of POLITICO’s “Understanding Obamacare” guide, and the POLITICO Pro health care team this Wednesday at 1:30 p.m. on Twitter with hashtag #ProChat to talk all things ACA.

ALSO FOR YOUR RADAR –

USAA HELPS OUT AIR FORCE FOOTBALL — USA TODAY’s Ian Wolken: “United Services Automobile Association, an insurance company that caters to members of the military and their families, is paying for the Air Force football team's entire trip to Navy this weekend — a tab of $230,000, Air Force Academy Athletic Corporation CEO Derm Coll said Friday. … With the game in jeopardy of being postponed due to the federal government shutdown, Air Force essentially tasked with raising the money for the trip through entirely private funding. Though the athletic department's non-profit arm … had enough funding to pay for the trip from things like merchandise sales, there was a gray area about whether team travel could be paid for legally under those circumstances. … A few hours after conversations started with USAA officials, they had pledged to pay for the whole trip.”

BUFFETT CRISIS PAYOFF TOPS $10 BILLION — WSJ’s Anupreeta Das: “Billionaire Warren Buffett tossed lifelines to a handful of blue-chip companies during the financial crisis. Five years later the payoff on those deals is becoming clear: $10 billion and counting. Mr. Buffett approached that figure after he collected another hefty payment last week, bringing to nearly 40 percent the pretax income on his crisis-era investments … Warren Buffett said he hopes to use the cash to make other big investments soon that will bring equally attractive returns. The bounty is a vivid illustration of one of Mr. Buffett's favorite investing maxims: ‘Be fearful when others are greedy, and be greedy when others are fearful.’

“The latest windfall for the Omaha, Neb., billionaire and his conglomerate, Berkshire Hathaway … came when candy maker Mars Inc. repaid $4.4 billion that its subsidiary, Wrigley, borrowed in 2008. That payment alone is expected to net Berkshire a profit of at least $680 million. ‘In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period,’ Mr. Buffett said in an interview Saturday. He was referring to a months-long stretch beginning in the fall of 2008 when the stocks of some of his favorite companies, including Wells Fargo … and American Express Co. … fell to historic lows. ‘You make your best buys when people are overwhelmingly fearful.’ But few investors, if any, capitalized on the crisis as expertly. By comparison, the U.S. government invested about $420 billion through its Troubled Asset Relief Program. The government also demanded beneficial terms and collected sizable dividend payments for a return of about $50 billion, or 12%, thus far” http://on.wsj.com/15V42ug

** The new health insurance tax that starts January 1, 2014, will raise the cost of small group family health care coverage by $360 next year and $6,830 over the next decade. Small businesses that are struggling in a slow economy can’t afford this big new tax, and neither can their employees. That’s why dozens of groups representing small business from all sectors of the economy have come together to form the Affordable Coverage Project and fight this onerous new tax. http://healthinsurancetaxhurts.org/ **